Surviving the Storm

It took some time for U.S. businesses to feel the negative effects of the recession that began in December 2007, and it looks as if it will take more time still until they start to feel the positive effects of a graudally recovering economy. A number of industry sectors—finance, title companies, contractors and law firms, for instance—have been feeling the brunt of the economic downturn most acutely. On the other end of the spectrum, however, are records and information management (RIM) companies. Many records storage and secure destruction firms have been finding ways to not only survive the recession but to grow in the last year.

The RIM industry has been said to be recession-resistant, and the last two years

For many firms this growth came largely through hard work in the form of prospecting and marketing, with many companies saying that sales cycles became longer and that they needed to provide more options to their prospects. Records management and information destruction firms also found themselves scrutinizing their expenses in an effort to remain in the black.

While recessions bring challenges for companies, they also bring opportunities. In the case of the RIM industry, these opportunities included new regulations as well as negotiating with vendors.

When asked if he believes the information management industry is recession-resistant, Eric Haas, CEO and president of Automated Records Management Systems Inc. (A.R.M.S.), De Pere, Wis., says, "I would say that is true to the point that the market is not fully vended, so new clientele are being brought on consistently."

A.R.M.S. is a full-service commercial record center providing RIM consultations, off-site media and records storage, e-backup solutions, e-mail archiving, network storage, data protection, media rotation services, document imaging, destruction services and disaster recovery planning.

However, despite this growth, Haas notes that the volume of documents collected per stop for destruction has declined during the recession.

Lee Augusty, CFO of Richards & Richards, Nashville, Tenn., also notes declining volumes in document destruction as well as in records storage on a per-client basis. While the company grew in 2009 in terms of sales, he adds that revenue from paper sales declined. "Compared to 2008, there was a 50 to 60 percent decrease in the price per ton that we were getting," he says.

However, because Richards & Richards continued to add accounts during the downturn, the company increased its total volume of recovered paper handled during 2009. "We shred more last year than we have ever shred," Augusty says. "We were up significantly insofar as tonnage."

Richards & Richards, which has been in business for more than 25 years, offers document destruction, off-site data storage and backup tape rotation, document imaging and RIM consulting.

The decline in volume on a per-client basis coupled with lower recovered fiber prices has led to less revenue generated through paper sales for companies offering document destruction services.

"I guess, like everyone else, the drastic drop in paper prices really cut our budget to the bone," says Renee Keener, president of American Document Securities Inc. (ADS), Carrollton, Ga. "Fortunately, this is not my first rodeo, and I knew not to rely on waste paper pricing for my livelihood; therefore, it made a difference to the bottom line, but we still made a profit," she says.

ADS offers document and media destruction services, records storage and management, imaging and recycling services.

While the market downturn was not the first experienced by established destruction firms, John Mesrobian, president of Loss Protection & Investigations Inc. (LPI), Fresno, Calif., says the decline in recovered fiber pricing that began in the fourth quarter of 2008 was "harder this time than the last time around" largely because of its degree and swiftness.

"Our broker cut off some of the companies who did only mobile because of the quality of their paper," he says. Fortunately for LPI, many of its clients have opted for off-site shredding, which allows the company to roughly sort incoming documents prior to shredding, maximizing the value of the LPI’s finished bales, Mesrobian says.

In markets where destruction services have been commoditized, the decline in back-end revenue was felt doubly hard.

Steve Spence of American Shredding, based in Reno, Nev., which provides on- and off-site destruction services throughout Nevada and Utah, says the recession and competition have led to price compression for destruction services in his region as well as across all markets. He says he thinks the price compression was driven by single-truck operations.

"Certain markets have gotten price competitive," says Scott Fasken, vice president of operations for Colorado Document Security (CDS), Palisade, Colo. The companies that have commoditized destruction services are "teaching customers bad habits," he adds. "Discounting makes it a price issue rather than a security issue. We should be selling based on security."

CDS is an on-site destruction firm serving western Colorado, eastern Utah, southern Wyoming and northern New Mexico.

With customers generating less volume in the form of documents earmarked for destruction and records to go into storage, RIM firms have had to look to new clients or services to make up this deficit. Therefore, prospecting grew even more critical in the last year. For some companies, doing so meant expanding their reach into nearby communities.

In the last year, CDS has expanded into parts of Utah and Wyoming, specifically underserved rural areas, in an effort to capture additional business, Fasken says. "We enlarged our pie and have been able to keep doing well during the recession."

However, Fasken points out that this is not a short-term fix, but a strategy that he has been working on over time while building his company’s brand and reputation. He adds that prospecting is the key to business growth, regardless of the economic environment. "You have to do constant prospecting in this business—I don’t care if it’s a recession or not," he says. "We are always out trying to be seen."

Puliz Records Management, Reno, Nev., added a full-time salesperson to its staff in the last year to focus on growing the company’s client base. The company, a division of Puliz Moving & Storage, offers records storage, data protection services, imaging provided through a third party and on- and off-site destruction services.

General Manager Ryan Puliz says, "I believe that our market has matured and the majority of new clients defect to Puliz from other companies. About one-third of our warehouses are filled with our competitors’ boxes from clients who have upgraded their service by switching to Puliz."

Puliz added mobile destruction services in the last year, and the response from the marketplace has been favorable, he says, helping the company secure additional business.

Steve Richards, president of Richards & Richards, says the company has enhanced its marketing efforts by taking a more targeted approach. The company’s Augusty adds, "We’re not just looking to get our name out. We are trying to reach the people we have the most to offer. We are looking for our sweet spot."

Richards adds, "The good thing about being in business as long as we have is that we know who we would like to do business with." Richards & Richards’s ideal customer is a locally owned company in which the decision makers are the founders, he says. "National companies are not necessarily in our sweet spot; they don’t generally appreciate service."

Haas agrees that prospecting and marketing become more critical in a recession. "A recession is not the time to cut back your marketing budget," he says. "It is the time to accelerate it. It is the only way you are going to keep driving your business forward."

The already lengthy sales cycle for records storage has increased somewhat with the recession. "The decision-making process is languishing," says Haas of A.R.M.S., adding that his contacts, typically the decision makers, now have to go to a superior to get approval before contracting with a RIM company. "Companies are being tighter with the purse strings, and this leads to multiple approvals."

The way A.R.M.S. sells its services also has changed as a result of the recession. "In the past, we may have just sold a service based on what they were asking for," Haas says. "Today we are giving them options to get them in the door faster. You have to really get to the bottom of what they need versus what they want. There is definitely a difference between ‘need’ and ‘want.’"

Richards & Richards also has had to work harder to increase its client base in 2009. Augusty says, "We’ve had to hustle harder for that same dollar we were getting pretty easily a couple of years ago."

Mesrobian says he has emphasized social marketing in an effort to expand LPI’s audience, exposing the company to more prospects. "A down market is a great time to expand," he says. "The cost of acquiring a new customer is less than when the economy is rolling along."

In addition to these efforts, LPI saw its customer base grow in 2009 because of referrals from existing customers, Mesrobian says. "We closed a larger number of call-ins."

The bottom line was a concern not only for clients but for RIM companies themselves in the last year.

Many RIM companies called "business as usual" into question in the last year. Richards says the recession caused his company to look more closely at certain aspects of the business.

Augusty adds, "The best part about going through difficult times is that you learn how to do things better and differently. You have to do a better job of examining your business, your policies and what you are doing." He adds, "If we have learned anything professionally, we learned that we should be doing that all the time. Sometimes we get complacent. [The recession] has forced us not to be complacent by any means."

Haas says he and the staff at A.R.M.S. try to resist complacency, even when the economy is doing well. "We run a tight ship on a consistent basis," he says. However, he acknowledges that this focus on the bottom line is extremely important during a recession. "You have to keep your house in order and keep selling and marketing."

For Mesrobian and LPI, doing things differently means changing the company’s mix of services. "We’re looking at diversifying," he says. "We’ve gotten involved in recycling programs for accounts and diversifying the range of services we’re providing in that sector."

Mesrobian continues, "We’re also looking at adding additional equipment capabilities and working on an ancillary service in which we will work more closely with our competitors."

LPI also has taken a closer look at its marketing budget, reallocating dollars that would normally have been spent on Yellow Page ads to other areas that provide better results, Mesrobian says.

While many RIM professionals say they are hopeful heading into 2010, they also express a number of concerns.

Fasken says he feels a "quantum shift" is occurring among businesses when it comes to managing their records. "Companies realize they have a hazardous waste problem in the form of their old records," he says. "They are fearful of their old records."

This mentality coupled with new regulations such as the Red Flags Rule under the Fair and Accurate Credit Transactions Act (FACTA) and the Health Information Technology for Economic and Clinical Health (HITECH) Act, which modifies the information security provisions established by the Health Information Portability and Accountability Act (HIPAA) and encourages the further development of electronic medical records (EMR) systems as a way to stimulate the economy, should provide opportunities for RIM companies going forward, Fasken says.

While Haas says he thinks HITECH will spur additional business for RIM professionals, he adds that many medical institutions and RIM companies are still trying to figure out what it means in practical terms. "It is not an issue until it is going to be an issue," he says.

When it comes to the economy in general, Haas says, "I think it is going to be the third or fourth quarter [of 2010] before it gets better."

Keener also expresses doubt about a full economic recovery in 2010. "My greatest concern is the government getting more involved in our business, especially with health care," she says.

Augusty says he not only worries about potential changes to the health care system but also about inflation. "I think interest rates are being held down artificially by the [Federal Reserve Board] right now. Once that lets go a little bit, it is going to shake loose with inflation that we have not been accustomed to for a while."

Mesrobian also expresses concern. "As a general proposition, I think that a lot of the stuff being proposed at the national level is not in the best interest of the country or small business," he says. "It is going to be challenging to operate and survive in that kind of environment."

He adds that opportunities will continue to be available, regardless of the general economic and business environment, though they may be riskier. "The companies willing to take risks will have success." n

The author is editor of Storage & Destruction Business and can be contacted at dtoto@gie.net.